Tri-Cities rents show new signs of softening, area remains attractive for rental investments


Although several Tri-Cities markets showed new signs of a softening rental market, a new analysis shows most local markets remain attractive for rental properties.

Three of the major cities in the Tri-Cities region are almost at the 50% renter level and a fourth – Kingsport – is on track to catch up.

While there are several trends driving the increase in renters the big one – economics – saw local investors or landlords take a hit in yields. But those hits to the bottom line are more of an indication of a rental market that is softening due to increased inventory than other issues. An analysis from Attom Data Solution’s Q1 Single Family Rental Market report shows that while five of the nine zip codes tracked in the report had gross yield decrease from 2016, all but one – 37615 in Johnson City – was still at or above the national average yield of 9.3%.

Rents for three-bedroom units increased in five of the markets tracked in the report.

Unfortunately, Sullivan County was not included in the Q1 report. Daren Blomquist, senior vice president at Attom, said the reason was data from the region’s largest county – and the one that is undergoing the largest increase in multi-family projects – was not available.

“We only included counties with a population of at least 100,000 and sufficient rental and home sales data. Sullivan County, the largest county in the Kingsport-Bristol metro, was the only county in the metro area with more than 100,000 people; however, it did not make the cut because we hadn’t gotten in sufficient home sales data yet for this year to reliably calculate a median home price. Typically, we would have sufficient data for a county that size at this point, but it appears that for some reason the data is coming in a bit slower, which can happen for a variety of reasons when collecting public record data,” he explained.

Hopefully, that situation will be resolved for the Q2 report.

According to the Q1 report, the average annual gross rental yield (annualized gross rent income divided by the median purchase price of single family homes) among the 375 counties was 9.0%, down from an average of 9.1% in 2016.

“While good returns on single family rentals are hard to come by in high-priced coastal markets and in some other housing hot spots such Nashville, solid returns on single family rentals will continue to be available in many parts of the Southeast, Rust Belt and Midwest for investors purchasing in 2017,”  Blomquist said. “And single family rentals should continue to yield strong returns in many parts of the country going forward given the market undercurrents of low rent-ready housing inventory and low homeownership rates. Average fair market rents increased in 2017 in 86 percent of the markets we analyzed even while average wage growth outpaced rent growth in 67 percent of markets — a recipe for sustainable growth in the rental market.”

Locally, fair market rents for three-bedroom units saw a small decline. One and two-bedroom rents were another matter. They increased in the Johnson City MSA and decreased in Kingsport-Bristol. A more detailed report on that issue can be found by CLICKING HERE.

According to a recent report by Forbes, renters may bet the upper hand in 2017. Even if the local multi-family projects that will be coming on line this year here in the Tri-Cities – the shift to more renters than owners in the major cities wouldn’t likely come until 2018.

The homeownership rate has fallen steadily for a decade as millions of foreclosures prompted more owners to rent. Renting likely will continue to rise through 2030, due to demographic trends like aging baby boomers who are opting to downsize to rentals, noted a 2015 report from the Urban Institute. Evidence of that is currently being seen here in the Tri-Cities.

Also, hampering the housing market in gaining the advantage: a shortage of homes for sale. That shortage is making it more difficult for renters to buy.

And many low-income families aren’t renting by their own choice, says Nela Richardson, chief economist at the real estate brokerage Redfin.

Here’s a capsule version of the data from the counties and zip codes in Q1 Attom report listed by 2017 annual gross yield and the change from 2016. (The 2017 median gross rental yield (annualized gross rent income divided by the median purchase price of single family homes) was 9%, down from an average of 9.1% in 2016.

  • 37643 – Carter Co, 10.6% down from 12.9%.
  • 37650 – Unicoi Co, 15.5%, up 12.1%.
  • 37681 – Washington Co. – 15%, down from 18.4%.
  • 37601 – Washington Co. – 9.6% up from 8.9%.
  • 37604 – Washington Co. – 9.3%, up from 7.4%.
  • 37615 – Washington Co. – 5.5%, down from 5.8%.
  • 37857 – Hawkins Co. – 12.5%, down from 15.4%.
  • 37645 – Hawkins Co. – 9.4%, unchanged from 2016.
  • 37642 – Hawkins Co. – 8.7%, down from 11.2%.

Here’s what the 2017 median 3-bedroom rent in those zip codes looked like compared to last year:

  • 37643 – Carter Co, $770, up from $750.
  • 37650 – Unicoi Co, $800, up from $780.
  • 37681 – Washington Co. – $770, up from $750.
  • 37601 – Washington Co. – $850, down from $865.
  • 37604 – Washington Co. – $870, down from $850.
  • 37615 – Washington Co. – $850, down from $865.
  • 37857 – Hawkins Co. – $830, down from $850.
  • 37645 – Hawkins Co. – $970, up from $930.
  • 37642 – Hawkins Co. – $830, down from $860.

The 2015 share of renters in city markets was:

  • Bristol VA – 44.8%.
  • Bristol, TN – 31.9%.
  • Elizabethton – 39%.
  • Greeneville – 48.1%.
  • Johnson City – 46.1%.
  • Kingsport- 36.8%.

 

 

Comments

  1. What is the fourth city? Gray? Blountville? Great resource.

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